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A convenient method for the estimation of the multinomial logit model with fixed effects

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  • D’Haultfœuille, Xavier
  • Iaria, Alessandro

Abstract

The conditional maximum likelihood estimator of the fixed-effect logit model suffers from a curse of dimensionality that may have severely limited its use in practice. As the number of alternatives and the number of choice situations per individual increase, the number of addends in the denominator of the fixed-effect logit formula grows exponentially. We propose to by-pass this curse of dimensionality by exploiting a classic result by McFadden (1978) and to consistently estimate the fixed-effect logit model on random samples of permutations of the observed choice sequences.

Suggested Citation

  • D’Haultfœuille, Xavier & Iaria, Alessandro, 2016. "A convenient method for the estimation of the multinomial logit model with fixed effects," Economics Letters, Elsevier, vol. 141(C), pages 77-79.
    • Handle: RePEc:eee:ecolet:v:141:y:2016:i:c:p:77-79
    DOI: 10.1016/j.econlet.2016.02.002
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    References listed on IDEAS

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    1. Arellano, Manuel & Honore, Bo, 2001. "Panel data models: some recent developments," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 5, chapter 53, pages 3229-3296, Elsevier.
    2. Gary Chamberlain, 1980. "Analysis of Covariance with Qualitative Data," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 47(1), pages 225-238.
    3. Klaus Pforr, 2014. "femlogit-Implementation of the multinomial logit model with fixed effects," Stata Journal, StataCorp LP, vol. 14(4), pages 847-862, December.
    4. Kenneth E. Train & Daniel L. McFadden & Moshe Ben-Akiva, 1987. "The Demand for Local Telephone Service: A Fully Discrete Model of Residential Calling Patterns and Service Choices," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 109-123, Spring.
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    Cited by:

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    3. Griffith, Rachel & Crawford, Gregory & Iaria, Alessandro, 2016. "Preference Estimation with Unobserved Choice Set Heterogeneity using Sufficient Sets," CEPR Discussion Papers 11675, C.E.P.R. Discussion Papers.
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    6. Anders Skrondal & Sophia Rabe-Hesketh, 2022. "The Role of Conditional Likelihoods in Latent Variable Modeling," Psychometrika, Springer;The Psychometric Society, vol. 87(3), pages 799-834, September.
    7. Michal Pavlicko & Jaroslav Mazanec, 2022. "Minimalistic Logit Model as an Effective Tool for Predicting the Risk of Financial Distress in the Visegrad Group," Mathematics, MDPI, vol. 10(8), pages 1-22, April.

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